Xi Opens China’s Wallet

Speaking to a UN summit on development goals, Chinese President Xi Jinping pledges development aid to poor countries of up to $12 billion over the next 15 years. (photo: Shanghaiist)

Now that Chinese President Xi Jinping announced last Saturday a pledge of $2 billion in development aid for poor countries, should these countries accept the offer? The question was raised in a recent article in the Christian Science Monitor, where the author warns the main country to benefit from Chinese generosity may be China itself.

The announcement by Xi, in his first address to the United Nations, follows criticism that China, as an economically powerful nation, should take on greater global responsibility. In 2013, according to the Paris-based Organization for Economic Cooperation and Development, the U.S. contributed more than $30 billion in overseas development assistance, with the U.K., France, Germany and Japan all contributing more than $11 billion.

During his speech, Xi proposed a new development assistance fund for the least developed countries with an initial investment of $2 billion, which could grow to at least $12 billion by 2030. By comparison, France also announced an extra four billion euros ($4.5 billion) per year starting in 2020, upping French aid to 12 billion euros ($13.5 billion) annually. Xi also promised this year to forgive some of the debts owed by poor countries. Most of the world’s least developed countries are situated in Africa, and the U.N. set a goal last Friday of eliminating extreme poverty (living on less than $1.25 a day) by 2030.

Yet China’s track record of investing money in Africa has often been criticized by international development banks, environmental and human rights groups, who argue Chinese investment is overly focused on quick and dirty resource extraction in poorly governed countries rather than more difficult humanitarian assistance to better governed countries. In Ecuador, $11 billion of Chinese money has helped fund energy projects, resulting in close to 90 percent of Ecuador’s oil exports now heading to China. Criticism has also come from African leaders, such as Botswana’s President Ian Khama, who earlier cautioned against further Chinese investment, stating “There’s no point in having a huge power investing in a country if those investments at the end of the day don’t do you any good”. Nigeria’s central bank governor, Lamido Sanusi, compared China’s increasing investment in Africa to the old colonialism: “It is time for Africans to wake up to the realities of their romance with China…China takes out primary goods and sells us manufactured ones. This was the essence of colonialism”.

Of course, energy and infrastructure projects such as dams and ports are one type of developmental assistance, which largely benefit Chinese construction companies, their imported Chinese workers, and Chinese citizens back home. Schools, low-income housing and hospitals are another type of developmental assistance which benefit locals. China has been actively promoting more of the former in Africa, and less of the latter, which is sorely needed in some of the least developed countries. So whether or not African leaders should accept Chinese developmental assistance over the next 15 years is a moot point – of course they will accept it. Whether the aid ends up in the pockets of the poor, or in the wallets of African government officials or crony capitalists depends on good governance – which unfortunately is in short supply in Africa. Xi’s initial pledge of $2 billion, and the potential of $12 billion by 2030, could go a long way in helping to alleviate poverty. But in order for the fund to be truly effective and to avoid some of the recent criticism of its efforts in Africa, Beijing will need to play a significant planning and oversight role to ensure the funds really reach the poor.

JEng

I think China should address all these accusations (in a non Japanese way) even if it risks losing deals to the Japanese. I think people should have the freedom to make deals with the Japanese and gain firsthand experience.

Author

Gary Sands

Gary Sands is a Senior Analyst at Wikistrat, a crowdsourced consultancy, and a Director at Highway West Capital Advisors, a venture capital, project finance and political risk advisory. He has contributed a number of op-eds for Forbes, U.S. News and World Report, Newsweek, Washington Times, The Diplomat, The National Interest, International Policy Digest, Asia Times, EurasiaNet, Eurasia Review, Indo-Pacific Review, the South China Morning Post, and the Global Times. He was previously employed in lending and advisory roles at Shell Capital, ABB Structured Finance, and the U.S. Overseas Private Investment Corporation. He earned his Masters of Business Administration in International Business from the George Washington University in Washington, D.C. and a Bachelor of Science in Finance at the University of Connecticut in Storrs, Connecticut. He spent six years in Shanghai from 2006-2012, four years in Rio de Janeiro, and is currently based in Ho Chi Minh City, Vietnam. [email protected]